How can you get a home loan interest rate of under 2 per cent?

How can you get a home loan interest rate of under 2 per cent?

Banks and mortgage lenders have been slashing home loan interest rates to historical lows in recent months, as they compete for business from the nation’s home buyers. But even with home loans out there with an interest rate with a 1 on the front, how can you successfully apply for one?

The facts on home loans under 2 per cent

At the time of writing, there are a couple of home loans available with interest rates of less than 2 per cent. These are some of the lowest rates that anyone at RateCity can remember seeing.

But (and this is a big but), the eligibility criteria for these home loans is very specific. While a few people would be able to benefit from these low, low rates, many borrowers would have to look elsewhere for a low-interest home loan that also suits their financial situation.

Additionally, your interest rate won’t be guaranteed to stay under 2 per cent forever – you may have to pay more for your mortgage in the future.

Loans.com.au

Loans.com.au recently announced an introductory home loan rate of just 1.99 per cent. While this is the lowest variable rate in Australia at the time of writing, the loan will revert to an ongoing variable rate of 2.57 per cent after the first year.

This rate is available to new customers who apply for an owner-occupier loan paying principal and interest repayments with a deposit of 20 per cent or more.

Recent RateCity analysis showed that if an owner-occupier with a $400,000 home loan switched from an average owner-occupier rate of 3.28 per cent to the 1 year introductory rate from Loans.com.au, they could potentially save $4,246 in the first year, including refinancing costs, or over $15,000 in the first five years.

Bank of us 

Bank of us is offering a home loan for up to 90 per cent of the property value, with an interest rate of 1.99 per cent, fixed for one, two, or three years. However, to be eligible for this loan, you need to be buying as an owner occupier, and you also need to be a resident of Tasmania (other terms and conditions also apply). If you’re a resident of the apple isle looking to buy a home to live in, this could be a mortgage option to consider, but for investors and those of us on the mainland, we’d need to look at other options.

Remember that these fixed rates will only last for a maximum of 3 years. Your rate will be locked in during this time, keeping you mortgage payments consistent for simpler budgeting, and protecting you from extra charges due to variable rate hikes. However, if the lender was to cut variable rates during this time, you may miss out on interest savings. And if you decide to refinance during the fixed-rate period, you may have to pay break fees.

Bank Australia

It’s also possible to get a home loan with an interest rate under 2 per cent through Bank Australia. Technically, they’re not offering a home loan with an interest rate below 2 percent – instead, in partnership with the Clean Energy Finance Corporation (CEFC), they’re offering a clean energy discount of 0.40 or even 0.50, allowing you to potentially get a fixed rate as low as 1.74 per cent for two or three years.

There are three ways to qualify for a green discount on a Bank Australia Premium Package Home Loan for $1.5 million or less:

  • Buy a property built after 31 December 2018 with a 7-star Nationwide House Energy Rating Scheme Certificate (NatHERS) rating for energy efficiency
  • Upgrade an existing property with ambitious green upgrades in the last 12 months; enough to achieve a minimum 1-star increase in energy efficiency.
  • Buy a new or existing home with three eligible sustainability features, like a minimum NatHERS rating of 8 stars, a solar system, a battery or a real-time in-home energy monitoring system.

Other terms and conditions also apply.

Before you apply

Remember that there’s a lot more to any home loan than just its interest rate. The home loan with the lowest interest rate may not be the best home loan for you. Always compare different options and check the fees, charges, features and other benefits before you apply.

If you’re not sure which home loan may be the best option for you, consider contacting a professional financial adviser or mortgage broker.  

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Learn more about home loans

What happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

What is a variable home loan?

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

How much deposit do I need for a home loan from ANZ?

Like other mortgage lenders, ANZ often prefers a home loan deposit of 20 per cent or more of the property value when you’re applying for a home loan. It may be possible to get a home loan with a smaller deposit of 10 per cent or even 5 per cent, but there are a few reasons to consider saving a larger deposit if possible:

  • A larger deposit tells a lender that you’re a great saver, which could help increase the chances of your home loan application getting approved.
  • The more money you pay as a deposit, the less you’ll have to borrow in your home loan. This could mean paying off your loan sooner, and being charged less total interest.
  • If your deposit is less than 20 per cent of the property value, you might incur additional costs, such as Lenders Mortgage Insurance (LMI).

What is a comparison rate?

The comparison rate is a more inclusive way of comparing home loans that factors in not only on the interest rate but also the majority of upfront and ongoing charges that add to the total cost of a home loan.

The rate is calculated using an industry-wide formula based on a $150,000 loan over a 25-year period and includes things like revert rates after an introductory or fixed rate period, application fees and monthly account keeping fees.

In Australia, all lenders are required by law to publish the comparison rate alongside their advertised rate so people can compare products easily.

What is the difference between fixed, variable and split rates?

Fixed rate

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

Variable rate

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

Split rates home loans

A split loan lets you fix a portion of your loan, and leave the remainder on a variable rate so you get a bet each way on fixed and variable rates. A split loan is a good option for someone who wants the peace of mind that regular repayments can provide but still wants to retain some of the additional features variable loans typically provide such as an offset account. Of course, with most things in life, split loans are still a trade-off. If the variable rate goes down, for example, the lower interest rates will only apply to the section that you didn’t fix.

What is a fixed home loan?

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

What is a standard variable rate (SVR)?

The standard variable rate (SVR) is the interest rate a lender applies to their standard home loan. It is a variable interest rate which is normally used as a benchmark from which they price their other variable rate home loan products.

A standard variable rate home loan typically includes most, if not all the features the lender has on offer, such as an offset account, but it often comes with a higher interest rate attached than their most ‘basic’ product on offer (usually referred to as their basic variable rate mortgage).

Who has the best home loan?

Determining who has the ‘best’ home loan really does depend on your own personal circumstances and requirements. It may be tempting to judge a loan merely on the interest rate but there can be added value in the extras on offer, such as offset and redraw facilities, that aren’t available with all low rate loans.

To determine which loan is the best for you, think about whether you would prefer the consistency of a fixed loan or the flexibility and potential benefits of a variable loan. Then determine which features will be necessary throughout the life of your loan. Thirdly, consider how much you are willing to pay in fees for the loan you want. Once you find the perfect combination of these three elements you are on your way to determining the best loan for you. 

How can I calculate interest on my home loan?

You can calculate the total interest you will pay over the life of your loan by using a mortgage calculator. The calculator will estimate your repayments based on the amount you want to borrow, the interest rate, the length of your loan, whether you are an owner-occupier or an investor and whether you plan to pay ‘principal and interest’ or ‘interest-only’.

If you are buying a new home, the calculator will also help you work out how much you’ll need to pay in stamp duty and other related costs.

What is the best interest rate for a mortgage?

The fastest way to find out what the lowest interest rates on the market are is to use a comparison website.

While a low interest rate is highly preferable, it is not the only factor that will determine whether a particular loan is right for you.

Loans with low interest rates can often include hidden catches, such as high fees or a period of low rates which jumps up after the introductory period has ended.

To work out the best value for money, have a look at a loan’s comparison rate and read the fine print to get across all the fees and charges that you could be theoretically charged over the life of the loan.

Remaining loan term

The length of time it will take to pay off your current home loan, based on the currently-entered mortgage balance, monthly repayment and interest rate.

Savings over

Select a number of years to see how much money you can save with different home loans over time.

e.g. To see how much you could save in two years by switching mortgages,  set the slider to 2.

Monthly Repayment

Your current monthly home loan repayment. To accurately calculate how much you could save, an accurate payment figure is required. If you are not certain, check your bank statement.